The relatively “unexciting” January 1st renewal season is a reflection of the mix of accounts and contracts up for renewal, and, as the reinsurance market moves through 2020, the rate increase story will improve, according to analysts at JMP Securities.
Overall, analysts highlight a relatively flat property catastrophe reinsurance market at the recent January 1st renewals, underpinned by flat/down European catastrophe lines and flat/up large/regional U.S. placements.
After consecutive heavy loss years, loss creep from certain events and an evident pull-back from alternative reinsurance capital, market participants were hopeful of improved dynamics at 1/1 in order to reverse some of the pain experienced in recent times.
The reality is that while there were some considerable price increases, the renewal has been described by brokers as divergent, disciplined and late. JMP analysts expand on this and state that although the mix of business up for renewal at 1/1 was a driver of the muted rate response, dynamics are likely to trend more positively through the year as the market approaches the mid-year renewals.
“As the year progresses, we think the rate increase story will improve as Japan wind renewals at April 1 are likely to see increases in excess of last year’s ~20% (on our recent London trip, we heard estimates generally in the +30-35% range, with some suggesting much higher) as significant adverse development on Typhoon Jebi and fresh losses from Typhoon Faxai and Typhoon Hagibis impact programs,” says JMP.
Analysts also expect that rates will continue to rise again as the focus shifts to the June/July Florida renewals, noting that some discussions in its London meetings suggested rate increases of as much as 40%. For some, notes JMP, increases will likely be significant as ongoing loss creep from hurricanes Irma and Michael pushes reinsurance industry losses higher.
“We expect the theme of differentiation to once again be at the forefront as reinsurers allocate the most capacity at the best price to those insurers that have demonstrated an understanding of the exposures in their book, while those that most widely missed the mark will likely be punished with reduced capacity and much higher pricing,” says JMP.
Client differentiation appears to be a trend of the 1/1 renewal period and as stated by JMP, this is expected to persist throughout 2020, and, as a result, there will undoubtedly be winners and losers.
